Buoyant liquidity supporting global equities: survey
Global equities are being supported by buoyant liquidity despite fund managers remaining concerned about the outlook for corporate earnings, according to a Merrill Lynch fund managers’ survey.
The survey found that managers’ average cash balances have risen to 4.1 per cent from 3.8 per cent in October, despite a 10 per cent rally in equity markets over the past three months
“It’s interesting that equities are rallying at a time when investors are struggling to see how corporate earnings could surprise positively in the coming year,” said David Bowers, independent consultant to Merrill Lynch.
“The good news for investors, however, is that cash levels remain robust, and it is this liquidity that is allowing valuations to take the strain,” he said.
The survey found a net 47 per cent of investors believe corporate profits worldwide will deteriorate in the coming year, and that the primary driver of profits growth will be cost-cutting.
“Inevitably, this means that for equities to rally, valuations have to take the strain,” Bowers said.
For the first time since 2004, the survey found more investors see equities as overvalued as opposed to undervalued.
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